Gold, silver, pgms, mining and geopolitical comment and news

Totally unanticipated ‘Black Swan’ events are already having an impact and there could be more ahead, as well as more predictable ones all affecting global economics and seei ng a return to gold as a Safe Haven. Article now up on Mineweb also. Go to Mineweb.com to read a slightly edited and udated version of this articl and other news and comment on mining and metals.

Lawrie Williams

January 2015 has already been remarkable for the number of Black Swan (unanticipated) events which have hit the markets in such a short space of time. Some of these have been totally unheralded like the Swiss National Bank’s decision to unpeg the Swiss Franc from the Euro – which really did take the markets by surprise – while others may, in hindsight have been a little more predictable. These include the escalation of fighting in Eastern Ukraine as both sides appear to have used a recent ceasefire to boost their military arsenals and prepare for more fighting; the death yesterday of King Abdullah of Saudi Arabia – perhaps predictable in that he was 90 years old and in poor health – but nonetheless promoting new uncertainties in what is a particularly volatile part of the world; the apparent growth in strength of Boko Haram in West Africa which has the potential perhaps to spread to major gold producing areas if the rebel group is unable to be held back; the Charlie Hebdo massacre in Paris which threatens to unleash an anti-Muslim backlash throughout Europe, or stimulate copycat killings by other fanatical fundamentalists. And all this within a three week period! Who knows what else lies in store for us in the remaining 49 weeks that lie ahead?

There are some very predictable potentially destabilising factors coming up. The latest opinion polls for Greek elections this weekend suggest the country is poised to put the left wing anti-austerity party, Syriza, into power, possibly with an overall majority sufficient to govern without a coalition partner. Pre-election rhetoric suggests that Syriza, if in power on its own, would renege on Greek debt commitments and drop many of the austerity measures imposed on the nation by the IMF and Eurozone. There are fears that this could lead to Greece’s exit from the Eurozone throwing the single currency system into disarray and a debt default could have a huge adverse impact on a number of major European banks culminating in a financial meltdown which could outdo that following the Lehman collapse, which was seen as leading to the 2008 global financial crisis.

Further ahead, the U.K. general election could see the continued rise of right wing anti-Europe party. UKIP, or perhaps its fade back into possible obscurity should a general election see a polarisation of support for the established main political parties as has happened in the past. A Conservative victory should start the runup to a referendum on EU membership and polls suggest now that a majority would favour a Brexit (British exit), but much could change in the two years before such a referendum is due given the huge amount of establishment propaganda which would probably be brought into play to try and keep Britain within the Community.

Meanwhile in the Middle East there is little sign of ISIL, which controls huge swathes of Syria and Iraq, including oil producing regions which give it revenue, being pushed back. Indeed there is the prospect of ISIL-related fundamentalist Muslim militant organisations springing up elsewhere in the Middle East and North Africa, as it has with Boko Haram in West Africa. The death of King Abdullah in Saudi Arabia brings more uncertainty into the Middle Eastern region as basically pro-Western policies there could be changed depending on the chosen new ruler and what his political leanings might entail.

But these are mostly at least semi-predictable factors. Black Swan events are, by definition, totally unpredictable and who knows what might happen next in this respect. But the chances are something will for which the global financial community is unprepared.

Fighting in the Ukraine is said to be escalating again for example and there is the definite possibility of much greater Russian direct involvement. Some suggest that the recent build-up of the Ukrainian military in the disputed region will force President Putin to take a much more overt approach ‘to protect the ethnic Russian nationals’ in and around Donetsk, regardless of the economic consequences. This has the potential to flare up into a major, and much more widespread, military conflagration, lead to a total shutdown of gas supplies through the Ukrainian pipelines. Ukraine would run out of the wherewithal to support its troops without ever more Eurozone cash being pumped in to support it. Russia seems to hold the military aces here.

Gold should thrive on uncertainty in terms of a big rise in safe haven demand – and we already look like having a very uncertain year ahead. Gold may have come back from its recent interim peaks following the SNB decision in particular and the much-heralded announcement of the ECB’s QE programme (although this turned out to be bigger than expected) and it seems to be having difficulty today holding on to the $1,300 level. But this could be just a temporary hiatus. As other geopolitical and economic factors come into play, there could be a huge boost – and that’s just from events which might be seen as predictable. More Black Swans could further upset the applecart that is the global economy and lead to yet another gold price upsurge as a result.